Last trading day of the year. After all is said and done, the stock market will have added over $17 trillion of total value in 2019. Yesterday we covered one of the best-performing stocks of the last twelve months, Shopify. Today we are going to review one of the worst stocks of 2019, Walgreens Boots Alliance (“Walgreens”).
Walgreens is the largest global retail pharmacy and was the worst-performing stock of the Dow Jones average in 2019, notching a loss of nearly 15%. Walgreens joined the Dow during June of 2018 after replacing General Electric, but since then has been just one of many underperforming retail stocks.
There is an elephant in the pharmacy. And its name is Bezos.
One of the key reasons Walgreens shares have suffered is because Amazon has set its sights on the pharmacy market. How? Amazon acquired PillPack in June 2018 for $750 million. And when Amazon spends that type of money to enter a new vertical, competitors have reason to be anxious.
The pharmacy industry feels particularly ripe for digital disruption. Retail pharmacies are the second largest sub-sector in the consumer space behind food and beverage. It is also the only retail sector in which Amazon doesn’t have a meaningful presence.
- Not Just Amazon: Other upstarts are aggressively chasing the $330 billion retail prescription business. Ro, the digital pharmacy for men’s health conditions, has garnered a $500 million valuation after just two years of operation. And Capsule, the digital pharmacy based in NYC, recently raised $200 million at an undisclosed valuation.
In 2015, Walgreens announced the proposed acquisition of Rite Aid for $17 billion. However, after antitrust regulators made it clear the deal would not be approved, the transaction was scaled back to include just half of Rite Aid locations.
- Why it Matters: In the past, acquisitions of smaller pharmacies have been a significant source of value creation for the company. At its current scale, needle-moving deals are likely to draw scrutiny from regulators. Many investors are worried that reality could hamper future growth.
The Inside Scoop
A few weeks ago rumors were swirling that KKR, a large private equity firm, was in talks to acquire Walgreens. Shares initially spiked on the report (as buyouts are typically associated with a share-price premium to entice investors). But so far, rumors have not panned out and many analysts believe that Walgreens is simply too large a target to be acquired. Sometimes, there is such a thing as too big.